Trial Court Did Not Err by Considering Merit Issues in Ruling That ‘Phone Cramming’ Lawsuit Cannot Be Pursued as Class Action

The Ohio Supreme Court ruled today that even though a trial court improperly considered the merits of a class-action claim about unauthorized charges on telephone bills, the court’s denial to certify the class was correct because the plaintiffs’ complaint did not comply with the certification requirements set out in Ohio Civil Rule 23.

The 5-2 decision, authored by Justice Sharon L. Kennedy, reverses a decision by the Sixth District Court of Appeals, reinstates the order of the trial court, and, in effect, decertifies the plaintiffs’ class action lawsuit.

Stammco LLC, a business owned by Kent and Carrie Stamm, and a number of other businesses and individuals filed a civil lawsuit in the Fulton County Court of Common Pleas against United Telephone Company of Ohio, a subsidiary of Sprint Nextel Corporation. In their complaint, originally filed in 2005, Stammco and its co-plaintiffs alleged that Sprint had engaged in negligent billing practices that allowed third-party providers of various add-on telephone services to engage in a practice known as “cramming” (placing unauthorized charges on a customer’s telephone bill).

The plaintiffs sought to pursue their claims against Sprint as a class action, i.e. as a single lawsuit through which multiple plaintiffs seek to recover damages from the same defendant based on the same alleged wrongful conduct.

Ohio Civil Rule 23 sets forth requirements that must be met in order for a trial court to “certify a class” of plaintiffs as eligible to pursue recovery from a defendant through a class action (rather than requiring each plaintiff to pursue his or her claim in an individual lawsuit). Those criteria include providing the court with a definition of the proposed class that unambiguously describes an identifiable group of plaintiffs who claim to have suffered actual harm or economic loss as a result of a specified type of tortious conduct by the defendant.

The plaintiffs submitted a definition that identified the class members as all Ohio customers of United Telephone who had received bills from the phone company within the preceding four years to which United Telephone had added charges assessed by third-party service providers “without their permission.” The trial court approved that definition and the other information submitted by the plaintiffs, and certified that they had met the Civ.R. 23 requirements to proceed with their suit as a class action.

Sprint appealed. The Sixth District Court of Appeals affirmed the trial court’s certification. Sprint then sought and was granted Supreme Court review of the Sixth District’s decision. In 2009, the Supreme Court held that the class definition that had been approved by the lower courts was ambiguous. In its decision, the court declined to rule on most of the specific assignments of error alleged by Sprint, but pointed to several phrases in the approved definition that were not sufficiently precise and remanded the case to the trial court to “redefine the class.”

The plaintiffs subsequently filed a motion asking the trial court to review and approve a revised class definition that clarified the ambiguities the Supreme Court had identified. Rather than ruling on the sufficiency of the revised class definition, the trial court entered a final judgment reversing its prior certification of the case as a class action and dismissing the plaintiffs’ complaint. As the basis for that action, the trial judge found that 1) the definition submitted described a prohibited “fail-safe” class, 2) the plaintiffs had brought their suit against Sprint rather than the third-party providers who were the real party at fault, and 3) the suit proposed imposing a duty on Sprint that was not required by current statutes or case law.

The plaintiffs appealed the trial court’s action. On review, the Sixth District Court of Appeals overruled the trial court’s finding that the plaintiffs’ revised definition constituted a prohibited “fail-safe” class, and held that the two other findings on which the trial court had based its denial of certification were irrelevant and inappropriate conclusions by the trial judge about the merits of the plaintiffs’ claims, because his analysis at this stage of the case should have been limited to whether the revised class definition met the criteria set forth in Civ.R. 23. Accordingly, the appeals court remanded the matter to the trial court with a directive to reopen the case and reanalyze the amended class definition according to the Civ.R. 23 criteria.

“At the certification stage in a class-action lawsuit, a trial court must undertake a rigorous analysis, which may include probing the underlying merits of the plaintiff’s claim, but only for the purpose of determining whether the plaintiff has satisfied the prerequisites of Civ.R. 23,” according to the syllabus holding of the court.

Applying that rigorous analysis, Justice Kennedy wrote “The trial court did err in basing its rejection of plaintiffs’ amended class definition on the determination that they would ultimately lose on the merits. Nevertheless, based on the proposed amended class definition, the evidence in this case, the certification requirements of Civ.R. 23, and the applicable case law on cramming, we hold that the trial court’s order rejecting the amended class definition was correct.”

“We have consistently held that a reviewing court should not reverse a correct judgment merely because it is based on erroneous reasons,” Justice Kennedy wrote, citing a 1990 Ohio Supreme Court case, E.g., Joyce v. Gen. Motors Corp.

Ultimately, Justice Kennedy concluded that “plaintiffs’ amended class definition is overbroad and fails to satisfy the predominance requirement of Civ.R. 23(B)(3).” While the court’s holding effectively decertifies the plaintiffs’ class action complaint, the court remanded the case to the trial court “for proceedings not precluded by the denial of class certification.”

Justice Paul E. Pfeifer wrote a dissent, which was joined by Justice William M. O’Neill.

Justice Pfeifer noted that he also dissented in the first Stammco case.

“The majority in that case remanded the case to the trial court to redefine the class,” Justice Pfeifer wrote. “That was, it turns out, a fool’s errand. The majority decides today that the class is not capable of definition.”

Justice Pfeifer questioned where Ohioans can turn to challenge wrongful business practices.

“As a practical matter, Ohio citizens who suffer small, individual damages as a result of a business’s serial bad conduct are without a meaningful remedy unless they can convince the Ohio attorney general to get interested in their cases,” he wrote. “This court is well on its way to consigning class actions in Ohio to the dustbin of legal history, joining workplace intentional torts. What is the next step in diminishing the role of courts?”

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